What’s in a price? When it comes to medicines, the cost could affect your health and well-being, according to Janet Schwartz, assistant professor of marketing at the A.B. Freeman School of Business at Tulane University in New Orleans.
A recent study found in the Journal of Consumer Research, “Goods: Changing the price of medicine influences perceived health risk,” by Schwartz and Adriana Samper of the W.P. Carey School of Business at Arizona State University, found that the cost of a medication directly impacts how consumers view their risk of catching an illness associated with the medicine.
In the study, some participants were told that a flu vaccine cost $25. Others were told the vaccine cost $125. People in the second group believed their risk of getting the flu was lower than did people in the first group.
Schwartz talks about her findings in the following interview with Bankrate.
Your study found that the more a flu shot costs, the less people think they are at risk for getting the flu. Why is this?
At first, we thought that people were having a reaction to the high prices … they didn’t want to pay, meaning that they said they were less at risk as a rationalization. To make sure that wasn’t happening, we then told people the price of the flu shot was either high or low, but said that health insurance would pay for it — so they have exposure to the price, but the cost doesn’t come out of their own pocket.
We found that people still felt that higher prices made people feel they were less at risk of getting the flu, and lower prices did the opposite. This risk estimate is important, because the more someone feels he is at risk of getting the flu, the more likely he is to get vaccinated.
Another thing we tested was whether medicines were lifesaving or cosmetic (makes you look better, but doesn’t improve your health or save your life), because people may have different ideas about the rules for prices in these different categories.
What we found was that prices had no effect on risk estimates for cosmetic ailments (like getting age spots one day), but prices did affect risk estimates for the lifesaving goods like vaccines. So we had two important pieces of information: People use price as information about their risk of developing a health-related problem even when they are not paying, and particularly when they are thinking about medicine for something that’s really important like a vaccine that can prevent them from getting very sick.
You stated that the price of a certain medicine is not linked to the risk of getting the illness associated with that medicine. Could you elaborate?
When people are determining the overall value of getting a flu shot, if they are behaving rationally, they would consider:
- The price of getting the flu shot (including the monetary cost of the shot, how much time it takes to get it, et cetera).
- The value of avoiding the flu.
- And the probability or chance of getting the flu.
And all of those things would be independent.
The risk of getting the flu cannot be dependent on the price of the flu shot, much the same way that your chance of winning at roulette does not change whether you could win $10 by betting on 5 or $10,000 by betting on 5.
The study contends that consumers make irrational inferences about their health risks based on the price of their medicine. This is true even when health insurance covers the cost. Please explain this finding.
The irrationality we refer to comes from the inconsistency in estimates depending on price. I make one conclusion about my risk of getting the flu if the shot is $5 and another if it is $125 (even if someone else is footing the bill). This, in turn, makes me more or less likely to actually get the shot. The likelihood that one could get the flu might be dependent on many things (age, overall health, et cetera), but it is not dependent on the price of the shot.
We would like to thank Janet Schwartz, assistant professor of marketing at the A.B. Freeman School of Business at Tulane University in New Orleans, for her insights.